Given that the country’s cash holding has reduced post-demonetisation, the second part of the Economic Survey released on Friday said reliance on cash in the economy appears to have gone down sharply.
The survey, however, cautioned that it could be too early to give a definitive judgement as it needs to be seen if the current levels are sustained. It also made a crucial assumption “that remonetisation has happened fully and that the supply of cash is now fully reflective of demand”. The cash holding in the economy as on July 2017 was Rs 3.5 lakh crore, down 20% had the pre-demonetisation trends prevailed.
India’s cash holding as a share of gross domestic product (GDP) has come down by 1.6 percentage points from 11.3% in 2011-12 to 9.7% at present and cash holding relative to money supply in the economy has come down by 5 percentage points during the same period.
Prime Minister Narendra Modi had on November 8 last year invalidated then-circulating Rs 500 and Rs 1,000 currency notes to flush black money out of the system and curb terror financing.
The survey points out that the cash holdings have moved to the banking system as increased digitalisation, accompanied with new enforcement and compliance regime, have reduced cash usage. However, though the surge seen in digital transactions immediately after demonetisation — mostly due to insufficient cash in the economy — has subsided, the overall level and pace of digitalisation have substantially gone up. Interestingly, the increased use of digital means for transactions are evident for all sections of the society including the affluent. The poor, too, through their RuPay-powered Jan Dhan bank account cards, have become a part of the digital economy. The government post-demonetisation has provided various incentives for people to move to digital modes of payments despite this having financial implications.